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Government Policy during the British Railway Mania and the 1847 Commercial Crisis

Journal: British Financial Crises Since 1825

Date: 20140101

Author: Campbell, Gareth

Abstract:
During the 1840s, Britain experienced a period of financial turbulence. Railway share prices rose and fell dramatically during the Railway Mania, there was a surge and then crash in the price of corn, and a Commercial Crisis followed. The development of an asset price reversal, a commodity price reversal, and problems in the commercial and banking sectors within such a short period of time makes this a particularly interesting episode, and the variety and intensity of events makes it a useful study in how to deal with financial instability.

Link: Google Scholar

Background and Context

Time Period

The 1840s in Britain saw three major financial events: the Railway Mania (1843-1845), a corn price reversal (1846-1847), and a commercial crisis (1847).

Key Issues

Railway share prices doubled then crashed, corn prices surged then plummeted, and widespread commercial failures occurred, testing government policy responses.

Research Focus

This study examines how effective different government policies were in addressing these financial crises, particularly comparing pre-crisis versus during-crisis interventions.

Railway Share Price Boom and Bust (1843-1850)

  • Railway shares nearly doubled in value between 1843-1845 before crashing
  • The crash led to a 57.5% decline from peak to trough
  • Shows how pre-crisis government regulations failed to prevent the bubble

Corn Price Volatility and Market Impact (1846-1847)

  • Corn prices rose from 53 to 102 shillings per quarter in less than a year
  • Prices then crashed by over 50% in just four months
  • Government's focus on preventing price rises failed to address the eventual crash

Bank of England Reserve Levels During Crisis (1847)

  • Banking reserve fell dramatically from £10.3 million to £2.0 million
  • The low reserves severely limited the Bank's ability to provide credit
  • Led to suspension of the Bank Charter Act to allow emergency lending

Impact of Bank Charter Act Suspension

  • Banking reserve recovered from £1.6M to £8.4M after suspension
  • Shows effectiveness of crisis-time intervention
  • Demonstrates how removing restrictions helped restore market confidence

Railway Network Expansion Despite Crisis

  • Railway network tripled from 1,951 to 6,123 miles despite the crisis
  • Shows that pre-crisis policies failed to prevent overexpansion
  • Led to long-term profitability challenges in the railway sector

Contribution and Implications

  • Pre-crisis regulations were generally ineffective due to political constraints and uncertainty about their impact
  • Crisis-time interventions were more successful as they faced less opposition and had clearer objectives
  • Future financial crises are likely inevitable, but robust government response during crises can help mitigate their severity

Data Sources

  • Railway share price and securities data from Figure 4.1
  • Corn price and company failure data from Figure 4.3
  • Bank of England reserve data from Figure 4.6
  • Railway network statistics from Mitchell (2003: 674)
  • Bank Charter Act suspension effects from narrative account in text